Demonetisation may spoil New Year party of smartphone sector

Sector likely to fall short of its revised target of 120 million units in 2016 due to note ban

After severely impacting the sale of mobile handsets during the end of the current year demonetisation may affect the growth of smartphones in India in 2017. According to industry estimates, shipment of mobile handsets may witness a dip of 40% during January-March 2017 quarter. As various firms have started revising their orders for the coming months.

Senior executives from various handset firms said, the vendors have already cut their order size for January and February as nearly 40% of the handsets imported during the current quarter lay in their warehouses. While, many attempted to revise their orders during November and December, they had to receive a chunk of it as such supply contracts are finalised months ago.

According to Faisal Kawoosa, an analyst at CyberMedia Research, shipment during early 2017 may remain subdued as firms are closely watching the retail level offtake. “A normalcy could be expected when liquidity in the market improves and inventory reduces.”

With two key currency notes going out of circulation, sales at the retail level plunged 50% during the weeks following November 8, when demonetisation was announced. The currency ban hit the sector at a time when it was touching new peaks. During July-September, 33 million units of smartphones were shipped in the country – the highest in any quarter.

Nearly two months after demonetisation, the situation looks grim. According to latest estimates by analyst firm Counterpoint Research, shipment of smartphones in the December quarter might remain 19% lower than the previous quarter.

Usually, the three months between October and December generates nearly 35% of yearly sales for most smartphone vendors in India as consumers flock to retail outlets during the festive season. Sales during October have been impressive with industry clocking 20% growth over the past year. Since demonetisation, stocks at the retail level have started piling up, leading to lower offtake for smartphone companies.

Smartphone companies in India – the fastest-growing major smartphones market in the world – began the year 2016 with high hopes. The market here was expected to touch 140 million units of smartphones during the year – 40% higher than the shipped figure of 103 million units in 2015. However, by October signs of a slowdown emerged as feature phone sales continued to remain high. Analysts revised their yearly forecasts for smartphones to 120 million units. But, as the effects of note ban started unfolding, experts now fear even the revised target might be tough to meet.

During the nine months between January and September, some 87 million units of smartphones have been shipped in the country. This leaves 33 million units to be imported for the current quarter, which according to estimates is unlikely given the analysts to estimate shipment to remain at 27 million units.

Smartphone companies, however, are leaving no stones unturned. Many have come up or extended their financing schemes where interest is borne by the company. According to Subhash Chandra, managing director, Sangeetha Mobiles, the number of equated monthly schemes has increased considerably since note ban. “However, the sale of handsets below Rs 3,000 remains impacted as financing is not offered for them,” he added.